Annuity Calculator for your pension fund

What is a Lifetime Annuity?

A Lifetime Annuity is a guaranteed income which you buy with a lump sum.

A Lifetime Annuity usually comes to an end when the named individual (also known as the annuitant) dies, however some Annuities can run for a specific length of time.

It is the only option which can guarantee an income for the rest of your life, however long that may be.

When can it be used?

The most common reason for buying an Annuity is retirement, when the lump sum you have built up over the years, through a life company or private scheme, is used to provide you with a lifetime income.

The ‘Open Market Option’ allows you to transfer your pension fund to another provider which currently offers the best annuity rates. An open market option is available on both Personal Pensions and Money Purchase company schemes.

It is now a legal requirement to ensure you are made aware of what your open market option will be. Annuities can also be bought by any investor requiring income, with a cash lump sum from any source.

Main features

The amount of Annuity income your pension fund can buy will depend initially on:

  • The size of your fund
  • Whether or not you take tax free cash when you retire
  • Your age and gender
  • Your health
  • The annuity rates available at the time

The type of Annuity you choose will also have an effect on the income you receive.  For instance, you will have to decide:

  • Whether you choose to have the same amount of income each year, or an increasing income to keep pace with inflation
  • Whether you choose to have your income paid in advance or arrears, and at what frequency
  • Whether you choose to guarantee payment of your income for a set period, typically five or ten years.  This means that if you die shortly after retirement, the full income continues to be paid to any beneficiary for the remainder of the guaranteed period.  For example, after two years, the balance of the income due during a five year guarantee period, that is three years, will be paid to your nominated beneficiary
  • Whether you take a joint life Annuity where the income continues to be paid to a dependant in the event of your death
  • Whether the Annuity should be set up with or without proportion. This refers to annuity payments which are paid in arrears. For example, if an annuity is paid annually in arrears and the annuitant dies at the beginning of the year, they will not have received their payment.  With proportion means that a proportional payment will be made for the percentage of the year in which the annuitant was living.  Conversely, without proportion means that no payment for that year will be paid
  • Whether the Annuity should be set up with or without overlap. Without overlap means that if the annuitant dies within the guaranteed period, the annuitant’s income is paid to the spouse/dependant, who will then receive their selected level of income from the end of the guaranteed period.  With overlap means that the selected spouse’s income starts immediately within the guaranteed period and the annuitant’s income also continues to be paid until the end of the guaranteed period.  This means it is possible that more than 100% of the annuitant’s income could be paid out
  • Whether value protection is included. This means that if you die before the total income payments received are at least equal to the original purchase price, the difference will be returned.  For example, if you purchased an Annuity for £100,000 and died after only receiving £60,000 worth of Annuity payments, the difference of £40,000, less a tax charge of 35%, would be paid to your estate.  This means the payout would be £26,000

Once the Annuity has been set up it cannot be changed, it is therefore crucial that all factors are considered to ensure that the correct decisions are made.

The Annuity payments are subject to Income Tax.

If you qualify, an Enhanced or Impaired Life Annuity could help to boost your income, as the Annuity you purchase can never be changed it is vital to consider whether you qualify for this type of Annuity:

  • An Enhanced Annuity is for those who have suffered health problems that are likely to have an impact on their anticipated lifespan.  Typical conditions are the effects caused by long-term smoking and/or high cholesterol, high blood pressure, angina, and circulatory or breathing difficulties.  It is therefore essential that when considering buying an Annuity you provide full details of your health, including any medication that you are currently taking.  For those applicants offered enhanced terms, the improvement to their income can range from perhaps 10% to as much as 30%
  • Impaired life Annuities are for those suffering from more severe ill-health.  These are for individuals where there is a clear expectation that their medical condition will substantially reduce their life expectancy, for instance, if they have suffered a heart attack, cancer or stroke. Again, full details of the medical condition are essential, and the additional income that can be secured is often substantial, reflecting the reduced anticipated lifespan. Once an individual is medically underwritten, accepted and the Annuity is purchased, the Annuity would then continue to be paid for the remainder of the individual’s life.  If they defeat their medical condition and live beyond their anticipated age, the annuity provider will continue to pay the Annuity


It is the only option which can guarantee an income for the rest of your life, however long that may be.

Once the Annuity has been purchased the income will never fall, even if Annuity rates do.

Unlike Unsecured Pension or an Investment Linked Annuity there is no investment risk.

Benefits such as indexation, guarantee periods, spouse’s pension etc can be added to ensure that the Annuity meets your needs.


You cannot change your choice once it is made, so it is important to get that decision right.

Once the Annuity has been purchased there is no possibility of benefiting from future investment growth on your fund.

Annuity rates will change according to the interest rate climate. Therefore, if you are buying at a time in the market cycle when interest rates are particularly low, you may get a lower Annuity rate.

If you have selected a spouse’s pension and your husband or wife dies before you, you will have paid for the spouse’s pension but will not actually benefit from it.

Next steps

Making the decision whether or not an Annuity is right for you can be hard enough, but you then have to make the right choices of which additional benefits to add to the plan. Making these decisions in the knowledge that they can never be changed makes planning and advice essential in this area. You are literally living with the decisions you make with regard to an Annuity for the rest of your life.

We have a number of additional resources for you to help you make a decision.

The following FSA guides are available:

Retirement Options

Your pension, it’s time to choose

Additionally you can contact us for free to obtain advice with regard to your options in retirement.

Learn more about how we offer Financial Advice

Finally, why not make use of our Annuity service which will allow us to provide you with a range of options based on your stated criteria.

Use our free Annuity Calculator

Whatever route you pursue, take advice. The decisions you make will effect your income for the rest of your life.